MINDANAO BUS CO. VS.

CITY ASSESSOR AND TREASURER,

G.R. NO. L-17870

G.R. No. L-17870 September 29, 1962

MINDANAO BUS COMPANY, petitioner,

vs.
THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro
City, respondents.

Binamira, Barria and Irabagon for petitioner.

Vicente E. Sabellina for respondents.

LABRADOR, J.:

This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710
holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-
mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals
on the ground that the same are not realty. The Board of Tax Appeals of the City sustained the city
assessor, so petitioner herein filed with the Court of Tax Appeals a petition for the review of the
assessment.

In the Court of Tax Appeals the parties submitted the following stipulation of facts:

Petitioner and respondents, thru their respective counsels agreed to the following stipulation
of facts:

1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by
motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by
the Public Service Commission;

2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch
Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and
Kibawe, Bukidnon Province;

3. That the machineries sought to be assessed by the respondent as real properties are the
following:

(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked
Annex "A";

(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";

1
 (c) Lathe machine with motor, appearing in the attached photograph, marked Annex
"C";

(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex
"D";

(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex
"E";

(f) Battery charger (Tungar charge machine) appearing in the attached photograph,
marked Annex "F"; and

(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked

Annex "G".

4. That these machineries are sitting on cement or wooden platforms as may be seen in the
attached photographs which form part of this agreed stipulation of facts;

5. That petitioner is the owner of the land where it maintains and operates a garage for its
TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these
machineries which are placed therein, its TPU trucks are made; body constructed; and same
are repaired in a condition to be serviceable in the TPU land transportation business it
operates;

6. That these machineries have never been or were never used as industrial equipments to
produce finished products for sale, nor to repair machineries, parts and the like offered to the
general public indiscriminately for business or commercial purposes for which petitioner has
never engaged in, to date. 1awphîl.nèt

The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having denied
a motion for reconsideration, petitioner brought the case to this Court assigning the following errors:

1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the
questioned assessments are valid; and that said tools, equipments or machineries are
immovable taxable real properties.

2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil
Code, and holding that pursuant thereto the movable equipments are taxable realties, by
reason of their being intended or destined for use in an industry.

3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City
Assessor's power to assess and levy real estate taxes on machineries is further restricted by
section 31, paragraph (c) of Republic Act No. 521; and

4. The Tax Court erred in denying petitioner's motion for reconsideration.

Respondents contend that said equipments, tho movable, are immobilized by destination, in
accordance with paragraph 5 of Article 415 of the New Civil Code which provides:

Art. 415. — The following are immovable properties:

2
 xxx xxx xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the

tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works. (Emphasis
ours.)

Note that the stipulation expressly states that the equipment are placed on wooden or cement
platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H.
Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:

Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real
property to "machinery, liquid containers, instruments or implements intended by the owner
of any building or land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of such trade or industry."

If the installation of the machinery and equipment in question in the central of the Mabalacat
Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar and industry,
converted them into real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as essential and principle
elements of a sugar central, without them the sugar central would be unable to function or
carry on the industrial purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment installed for carrying on the
sugar industry for which it has been established must necessarily be permanent. (Emphasis
ours.)

So that movable equipments to be immobilized in contemplation of the law must first be "essential
and principal elements" of an industry or works without which such industry or works would be
"unable to function or carry on the industrial purpose for which it was established." We may here
distinguish, therefore, those movable which become immobilized by destination because they
are essential and principal elements in the industry for those which may not be so considered
immobilized because they are merely incidental, not essential and principal. Thus, cash registers,
typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals
and are not and should not be considered immobilized by destination, for these businesses can
continue or carry on their functions without these equity comments. Airline companies use forklifts,
jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus
retain their movable nature. On the other hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are immobilized because they are essential to said
industries; but the delivery trucks and adding machines which they usually own and use and are
found within their industrial compounds are merely incidental and retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by their nature, not essential
and principle municipal elements of petitioner's business of transporting passengers and cargoes by
motor trucks. They are merely incidentals — acquired as movables and used only for expediency to
facilitate and/or improve its service. Even without such tools and equipments, its business may be
carried on, as petitioner has carried on, without such equipments, before the war. The transportation
business could be carried on without the repair or service shop if its rolling equipment is repaired or
serviced in another shop belonging to another.

The law that governs the determination of the question at issue is as follows:

Art. 415. The following are immovable property:

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 xxx xxx xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the

tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works; (Civil Code of
the Phil.)

Aside from the element of essentiality the above-quoted provision also requires that the industry or
works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu
Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in a
building constructed on the land. A sawmill would also be installed in a building on land more or less
permanently, and the sawing is conducted in the land or building.

But in the case at bar the equipments in question are destined only to repair or service the
transportation business, which is not carried on in a building or permanently on a piece of land, as
demanded by the law. Said equipments may not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in question are not absolutely
essential to the petitioner's transportation business, and petitioner's business is not carried on in a
building, tenement or on a specified land, so said equipment may not be considered real estate
within the meaning of Article 415 (c) of the Civil Code.

WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment
in question declared not subject to assessment as real estate for the purposes of the real estate tax.
Without costs.

So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.
Regala, Concepcion and Barrera JJ., took no part.

4
 FELS ENERGY, INC. VS. PROVINCE OF BATANGAS, ET.AL.,
G.R. NO. 168557

G.R. No. 168557 February 16, 2007

FELS ENERGY, INC., Petitioner,

vs.
THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

x----------------------------------------------------x

G.R. No. 170628 February 16, 2007

NATIONAL POWER CORPORATION, Petitioner,

vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his
capacity as the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS
represented by its Provincial Assessor, Respondents.

DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which
were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC),
respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision 1 of
the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 dated June 20, 2005; the
second, also a petition for review on certiorari, challenges the February 9, 2005 Decision3 and
November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed
on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW
diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years.
Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import
duties, fees, charges and other levies imposed by the National Government of the Republic of the
Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to
or in relation to the performance of their obligations under this agreement (other than (i) taxes
imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its
employees and (ii) construction permit fees, environmental permit fees and other similar fees and
charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the
Power Barges.6

5
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially
opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

On August 7, 1995, FELS received an assessment of real property taxes on the power barges from
Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered
those due for 1994, amounted to ₱56,184,088.40 per annum. FELS referred the matter to NPC,
reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the
full power and authority to represent it in any conference regarding the real property assessment of
the Provincial Assessor.

In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessor’s
decision to assess real property taxes on the power barges. However, the motion was denied on
September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.8 This
prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting
aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that
should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the
necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real property for
purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the
Department of Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly
stated that power barges are not real property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the
amount of ₱56,184,088.40, for the year 1994.

SO ORDERED.12

The LBAA ruled that the power plant facilities, while they may be classified as movable or personal
property, are nevertheless considered real property for taxation purposes because they are installed
at a specific location with a character of permanency. The LBAA also pointed out that the owner of
the barges–FELS, a private corporation–is the one being taxed, not NPC. A mere agreement making
NPC responsible for the payment of all real estate taxes and assessments will not justify the
exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS.
Finally, the LBAA also ruled that the petition was filed out of time.

Aggrieved, FELS appealed the LBAA’s ruling to the Central Board of Assessment Appeals (CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant
by Distraint13 over the power barges, seeking to collect real property taxes amounting to
₱232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on
November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the
Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment
during the pendency of the appeal.

6
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the properties of
FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or
judgment which the Board would issue.

Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings before
the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to
guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that
the judgment be unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real
property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of
Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas
is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List
of Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby
directed to act accordingly.

SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since
they are actually, directly and exclusively used by it, the power barges are covered by the
exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA
ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in
accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for
reconsideration, which was opposed by FELS and NPC.

In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier
decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the
Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19, 2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.
Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.

7
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490
praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution23 dated
February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-
G.R. SP No. 67491, since it is the ponente of the latter petition who should resolve the request for
reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the
appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of
prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions
dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are
AFFIRMED.

SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the
appellate court’s decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as
G.R. No. 165113, assailing the appellate court’s decision in CA-G.R. SP No. 67490. The petition
was, however, denied in this Court’s Resolution25 of November 8, 2004, for NPC’s failure to
sufficiently show that the CA committed any reversible error in the challenged decision. NPC filed a
motion for reconsideration, which the Court denied with finality in a Resolution26 dated January 19,
2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right
to question the assessment of the Provincial Assessor had already prescribed upon the failure of
FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since
FELS had lost the right to question the assessment, the right of the Provincial Government to collect
the tax was already absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February
5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution27 dated
November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for
lack of merit in a Resolution28 dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising
the following issues:

A.

Whether power barges, which are floating and movable, are personal properties and therefore, not
subject to real property tax.

B.

Assuming that the subject power barges are real properties, whether they are exempt from real
estate tax under Section 234 of the Local Government Code ("LGC").

8
C.

Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it
should be NPC which should be made to pay the same under the law.

D.

Assuming arguendo that the subject power barges are real properties, whether or not the same is
subject to depreciation just like any other personal properties.

E.

Whether the right of the petitioner to question the patently null and void real property tax assessment
on the petitioner’s personal properties is imprescriptible.29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),
indicating the following errors committed by the CA:

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA
WAS FILED OUT OF TIME.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES
ARE NOT SUBJECT TO REAL PROPERTY TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON
THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30

Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006. 1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their
respective Memoranda within 30 days from notice. Almost a year passed but the parties had not
submitted their respective memoranda. Considering that taxes—the lifeblood of our economy—are
involved in the present controversy, the Court was prompted to dispense with the said pleadings,
with the end view of advancing the interests of justice and avoiding further delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred.
FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995,
the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the
60-day period for appealing to the LBAA should be reckoned from its receipt of the denial of its
motion for reconsideration.

Petitioners’ contentions are bereft of merit.

9
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:

SECTION 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in
the property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7,
1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt
hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on
the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits
or documents submitted in support of the appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file
a motion for reconsideration of the Provincial Assessor’s decision, a remedy not sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city
or municipal assessor in the assessment of the property. It follows then that the determination made
by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls
within its power to assess properties for taxation purposes subject to appeal before the LBAA.33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No.
67491. The two divisions of the appellate court cited the case of Callanta v. Office of the
Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of the local
assessor on a particular assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not
permit the property owner the remedy of filing a motion for reconsideration before the local assessor.
The pertinent holding of the Court in Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals
before the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices
of assessment, the owners chose to bring their requests for a review/readjustment before the city
assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite
corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation
where values of real property may be initially set unreasonably high, and then subsequently reduced
upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit
trade-off cannot be avoided, and in fact can conveniently take place. Such occasion for mischief
must be prevented and excised from our system.36

For its part, the appellate court declared in CA-G.R. SP No. 67491:

x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or
lawful possessor of real property of its revised assessed value, the former shall no longer have any
jurisdiction to entertain any request for a review or readjustment. The appropriate forum where the
aggrieved party may bring his appeal is the LBAA as provided by law. It follows ineluctably that the
60-day period for making the appeal to the LBAA runs without interruption. This is what We held in
SP 67490 and reaffirm today in SP 67491.37

10
To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect
the taxes due with respect to the taxpayer’s property becomes absolute upon the expiration of the
period to appeal.38 It also bears stressing that the taxpayer’s failure to question the assessment in
the LBAA renders the assessment of the local assessor final, executory and demandable, thus,
precluding the taxpayer from questioning the correctness of the assessment, or from invoking any
defense that would reopen the question of its liability on the merits.39

In fine, the LBAA acted correctly when it dismissed the petitioners’ appeal for having been filed out
of time; the CBAA and the appellate court were likewise correct in affirming the dismissal.
Elementary is the rule that the perfection of an appeal within the period therefor is both mandatory
and jurisdictional, and failure in this regard renders the decision final and executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by
res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final
determination on the issue of prescription), effectively precludes the claims herein; and that the filing
of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.

FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was
not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not
participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As
to the issue of forum shopping, petitioner claims that no forum shopping could have been committed
since the elements of litis pendentia or res judicata are not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two grounds
embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it
to the interest of the

State that there should be an end to litigation – republicae ut sit litium; and (2) the hardship on the
individual of being vexed twice for the same cause – nemo debet bis vexari et eadem causa. A
conflicting doctrine would subject the public peace and quiet to the will and dereliction of individuals
and prefer the regalement of the litigious disposition on the part of suitors to the preservation of the
public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court
of Appeals:42

x x x An existing final judgment or decree – rendered upon the merits, without fraud or collusion, by
a court of competent jurisdiction acting upon a matter within its authority – is conclusive on the rights
of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other
judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.

xxx

Courts will simply refuse to reopen what has been decided. They will not allow the same parties or
their privies to litigate anew a question once it has been considered and decided with finality.
Litigations must end and terminate sometime and somewhere. The effective and efficient
administration of justice requires that once a judgment has become final, the prevailing party should
not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same
parties.

This is in accordance with the doctrine of res judicata which has the following elements: (1) the
former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter

11
and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and
the second actions, identity of parties, subject matter and causes of action. The application of the
doctrine of res judicata does not require absolute identity of parties but merely substantial identity of
parties. There is substantial identity of parties when there is community of interest or privity of
interest between a party in the first and a party in the second case even if the first case did not
implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding
real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as
G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed
decision in the earlier petition for review filed in this Court was the decision of the appellate court in
CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is
binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are
substantially "identical parties" as to warrant the application of res judicata. FELS’s argument that it
is not bound by the erroneous petition filed by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when,
as a result of an adverse judgment in one forum, a party seeks another and possibly favorable
judgment in another forum other than by appeal or special civil action or certiorari. There is also
forum shopping when a party institutes two or more actions or proceedings grounded on the same
cause, on the gamble that one or the other court would make a favorable disposition.44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not
present in the cases at bar; however, as already discussed, res judicata may be properly applied
herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after
the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying
to get a favorable decision from one of the tribunals which allowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is the
vexation caused to the courts and the parties-litigants by the filing of similar cases to claim
substantially the same reliefs.45 The rationale against forum shopping is that a party should not be
allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or complaints
constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks
havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets
of the courts.46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as
represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts, and (c) the identity of the two preceding particulars is such
that any judgment rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other.47

Having found that the elements of res judicata and forum shopping are present in the consolidated
cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and
contentment of petitioners, we shall shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are real property and are thus
subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113
was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax
examiners are presumed correct and made in good faith, with the taxpayer having the burden of
proving otherwise.48 Besides, factual findings of administrative bodies, which have acquired
expertise in their field, are generally binding and conclusive upon the Court; we will not assume to

12
interfere with the sensible exercise of the judgment of men especially trained in appraising property.
Where the judicial mind is left in doubt, it is a sound policy to leave the assessment
undisturbed.49 We find no reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al.,50 a power
company brought an action to review property tax assessment. On the city’s motion to dismiss, the
Supreme Court of New York held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant
barges, and the accessory equipment mounted on the barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though
floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast"
are considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an
industry or work which may be carried on in a building or on a piece of land and which tend directly
to meet the needs of said industry or work.51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by
petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation,
and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner
FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section
2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,
fittings, machinery and equipment on the Site used in connection with the Power Barges which have
been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges
for the purpose of converting Fuel of NAPOCOR into electricity.52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:

SECTION 234. Exemptions from Real Property Tax. – The following are exempted from payment of
the real property tax:

xxx

(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power; x x x

Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in
this provision because Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the
necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power
Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53

13
It is a basic rule that obligations arising from a contract have the force of law between the parties.
Not being contrary to law, morals, good customs, public order or public policy, the parties to the
contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.55 The law does not look with favor on tax exemptions and the entity that would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.56 Thus, applying the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is
considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the exemption.
The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between
FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of
Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local
government’s deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited
in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is
to be found only in the responsibility of the legislature which imposes the tax on the constituency
who are to pay for it.57 The right of local government units to collect taxes due must always be
upheld to avoid severe tax erosion. This consideration is consistent with the State policy to
guarantee the autonomy of local governments58 and the objective of the Local Government Code
that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the attainment of
national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed
revenues to finance and support myriad activities of the local government units for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people.60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.

SO ORDERED.

14
 DAVAO SAWMILL CO. VS. CASTILLO, G.R. NO. 40411

G.R. No. L-40411 August 7, 1935

DAVAO SAW MILL CO., INC., plaintiff-appellant,

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.

Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.

MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial court and as
set forth by counsel for the parties on appeal, involves the determination of the nature of the
properties described in the complaint. The trial judge found that those properties were personal in
nature, and as a consequence absolved the defendants from the complaint, with costs against the
plaintiff.

The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the
Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu, municipality of
Davao, Province of Davao. However, the land upon which the business was conducted belonged to
another person. On the land the sawmill company erected a building which housed the machinery
used by it. Some of the implements thus used were clearly personal property, the conflict concerning
machines which were placed and mounted on foundations of cement. In the contract of lease
between the sawmill company and the owner of the land there appeared the following provision:

That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive ownership
of the party of the first part without any obligation on its part to pay any amount for said
improvements and buildings; also, in the event the party of the second part should leave or
abandon the land leased before the time herein stipulated, the improvements and buildings
shall likewise pass to the ownership of the party of the first part as though the time agreed
upon had expired: Provided, however, That the machineries and accessories are not
included in the improvements which will pass to the party of the first part on the expiration or
abandonment of the land leased.

In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw,
Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action
against the defendant in that action; a writ of execution issued thereon, and the properties now in
question were levied upon as personalty by the sheriff. No third party claim was filed for such
properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein.
Indeed the bidder, which was the plaintiff in that action, and the defendant herein having
consummated the sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the sheriff of Davao.

As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has
on a number of occasions treated the machinery as personal property by executing chattel
mortgages in favor of third persons. One of such persons is the appellee by assignment from the
original mortgages.

15
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property
consists of —

1. Land, buildings, roads and constructions of all kinds adhering to the soil;

xxx xxx xxx

5. Machinery, liquid containers, instruments or implements intended by the owner of any

building or land for use in connection with any industry or trade being carried on therein and
which are expressly adapted to meet the requirements of such trade of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We entertain
no doubt that the trial judge and appellees are right in their appreciation of the legal doctrines flowing
from the facts.

In the first place, it must again be pointed out that the appellant should have registered its protest
before or at the time of the sale of this property. It must further be pointed out that while not
conclusive, the characterization of the property as chattels by the appellant is indicative of intention
and impresses upon the property the character determined by the parties. In this connection the
decision of this court in the case of Standard Oil Co. of New York vs. Jaramillo ( [1923], 44 Phil.,
630), whether obiter dicta or not, furnishes the key to such a situation.

It is, however not necessary to spend overly must time in the resolution of this appeal on side issues.
It is machinery which is involved; moreover, machinery not intended by the owner of any building or
land for use in connection therewith, but intended by a lessee for use in a building erected on the
land by the latter to be returned to the lessee on the expiration or abandonment of the lease.

A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme
Court, it was held that machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a
usufructuary, or any person having only a temporary right, unless such person acted as the agent of
the owner. In the opinion written by Chief Justice White, whose knowledge of the Civil Law is well
known, it was in part said:

To determine this question involves fixing the nature and character of the property from the
point of view of the rights of Valdes and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights derived
by them from the execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable (real) property, not
only land and buildings, but also attributes immovability in some cases to property of a
movable nature, that is, personal property, because of the destination to which it is applied.
"Things," says section 334 of the Porto Rican Code, "may be immovable either by their own
nature or by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as follows: "Machinery,
vessels, instruments or implements intended by the owner of the tenements for the industrial
or works that they may carry on in any building or upon any land and which tend directly to
meet the needs of the said industry or works." (See also Code Nap., articles 516, 518 et seq.
to and inclusive of article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with which we are dealing —
machinery placed in the plant — it is plain, both under the provisions of the Porto Rican Law
and of the Code Napoleon, that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant. Such result would

16
 not be accomplished, therefore, by the placing of machinery in a plant by a tenant or a
usufructuary or any person having only a temporary right. (Demolombe, Tit. 9, No. 203;
Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5, No. 447; and decisions quoted in
Fuzier-Herman ed. Code Napoleon under articles 522 et seq.) The distinction rests, as
pointed out by Demolombe, upon the fact that one only having a temporary right to the
possession or enjoyment of property is not presumed by the law to have applied movable
property belonging to him so as to deprive him of it by causing it by an act of immobilization
to become the property of another. It follows that abstractly speaking the machinery put by
the Altagracia Company in the plant belonging to Sanchez did not lose its character of
movable property and become immovable by destination. But in the concrete immobilization
took place because of the express provisions of the lease under which the Altagracia held,
since the lease in substance required the putting in of improved machinery, deprived the
tenant of any right to charge against the lessor the cost such machinery, and it was
expressly stipulated that the machinery so put in should become a part of the plant belonging
to the owner without compensation to the lessee. Under such conditions the tenant in putting
in the machinery was acting but as the agent of the owner in compliance with the obligations
resting upon him, and the immobilization of the machinery which resulted arose in legal
effect from the act of the owner in giving by contract a permanent destination to the
machinery.

xxx xxx xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable property,
it follows that they had the right to levy on it under the execution upon the judgment in their
favor, and the exercise of that right did not in a legal sense conflict with the claim of Valdes,
since as to him the property was a part of the realty which, as the result of his obligations
under the lease, he could not, for the purpose of collecting his debt, proceed separately
against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs of
this instance to be paid by the appellant.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

17
MAKATI LEASING AND FINANCIAL CORPORATION VS. WEAREVER
TEXTILE MILLS, INC., G.R. NO. L-58469

G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,

vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate
Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later
specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of
Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981
of the said appellate court, denying petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing
and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and
assigned several receivables with the former under a Receivable Purchase Agreement. To secure
the collection of the receivables assigned, private respondent executed a Chattel Mortgage over
certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering
Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed
to gain entry into private respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the
Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the
lower court.

Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing of a
motion for reconsideration. After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to
break open the premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.

18
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized
by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the
new Civil Code, the same being attached to the ground by means of bolts and the only way to
remove it from respondent's plant would be to drill out or destroy the concrete floor, the reason why
all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The
appellate court rejected petitioner's argument that private respondent is estopped from claiming that
the machine is real property by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner
has brought the case to this Court for review by writ of certiorari. It is contended by private
respondent, however, that the instant petition was rendered moot and academic by petitioner's act of
returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was
promulgated.

The contention of private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to a motion for
reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative. 1 Considering that petitioner has reserved its right to question the
propriety of the Court of Appeals' decision, the contention of private respondent that this petition has
been mooted by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery in
suit is real or personal property from the point of view of the parties, with petitioner arguing that it is a
personality, while the respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null and void, as contended
by said respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court,
speaking through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal

property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they should not now be allowed to
make an inconsistent stand by claiming otherwise. Moreover, the subject house
stood on a rented lot to which defendants-appellants merely had a temporary right as
lessee, and although this can not in itself alone determine the status of the property,
it does so when combined with other factors to sustain the interpretation that the
parties, particularly the mortgagors, intended to treat the house as personality.
Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung
Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the
validity of the chattel mortgage, it is the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the validity of the chattel mortgage in this
case. The doctrine of estoppel therefore applies to the herein defendants-appellants,
having treated the subject house as personality.

Examining the records of the instant case, We find no logical justification to exclude the rule out, as
the appellate court did, the present case from the application of the abovequoted pronouncement. If
a house of strong materials, like what was involved in the above Tumalad case, may be considered
as personal property for purposes of executing a chattel mortgage thereon as long as the parties to

19
the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals
lays stress on the fact that the house involved therein was built on a land that did not belong to the
owner of such house. But the law makes no distinction with respect to the ownership of the land on
which the house is built and We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by
the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that
the parties to a contract may by agreement treat as personal property that which by nature would be
real property, as long as no interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never represented
nor agreed that the machinery in suit be considered as personal property but was merely required
and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery as movable or immovable
was never placed in issue before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court. Moreover, even granting that the
charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of another. Private respondent
could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has
benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case of Machinery
and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable
to the case at bar, the nature of the machinery and equipment involved therein as real properties
never having been disputed nor in issue, and they were not the subject of a Chattel Mortgage.
Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case to be the
more controlling jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed
and set aside, and the Orders of the lower court are hereby reinstated, with costs against the private
respondent.

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.

Abad Santos, J., concurs in the result.

20
 BOARD OF ASSESSMENT APPEALS VS. MERALCO, 10 SCRA 68

G.R. No. L-15334 January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF QUEZON

CITY, petitioners,
vs.
MANILA ELECTRIC COMPANY, respondent.

Assistant City Attorney Jaime R. Agloro for petitioners.

Ross, Selph and Carrascoso for respondent.

PAREDES, J.:

From the stipulation of facts and evidence adduced during the hearing, the following appear:

On October 20, 1902, the Philippine Commission enacted Act No. 484 which authorized the
Municipal Board of Manila to grant a franchise to construct, maintain and operate an electric street
railway and electric light, heat and power system in the City of Manila and its suburbs to the person
or persons making the most favorable bid. Charles M. Swift was awarded the said franchise on
March 1903, the terms and conditions of which were embodied in Ordinance No. 44 approved on
March 24, 1903. Respondent Manila Electric Co. (Meralco for short), became the transferee and
owner of the franchise.

Meralco's electric power is generated by its hydro-electric plant located at Botocan Falls, Laguna
and is transmitted to the City of Manila by means of electric transmission wires, running from the
province of Laguna to the said City. These electric transmission wires which carry high voltage
current, are fastened to insulators attached on steel towers constructed by respondent at intervals,
from its hydro-electric plant in the province of Laguna to the City of Manila. The respondent Meralco
has constructed 40 of these steel towers within Quezon City, on land belonging to it. A photograph of
one of these steel towers is attached to the petition for review, marked Annex A. Three steel towers
were inspected by the lower court and parties and the following were the descriptions given there of
by said court:

The first steel tower is located in South Tatalon, España Extension, Quezon City. The
findings were as follows: the ground around one of the four posts was excavated to a depth
of about eight (8) feet, with an opening of about one (1) meter in diameter, decreased to
about a quarter of a meter as it we deeper until it reached the bottom of the post; at the
bottom of the post were two parallel steel bars attached to the leg means of bolts; the tower
proper was attached to the leg three bolts; with two cross metals to prevent mobility; there
was no concrete foundation but there was adobe stone underneath; as the bottom of the
excavation was covered with water about three inches high, it could not be determined with
certainty to whether said adobe stone was placed purposely or not, as the place abounds
with this kind of stone; and the tower carried five high voltage wires without cover or any
insulating materials.

The second tower inspected was located in Kamuning Road, K-F, Quezon City, on land
owned by the petitioner approximate more than one kilometer from the first tower. As in the
first tower, the ground around one of the four legs was excavate from seven to eight (8) feet
deep and one and a half (1-½) meters wide. There being very little water at the bottom, it

21
 was seen that there was no concrete foundation, but there soft adobe beneath. The leg was
likewise provided with two parallel steel bars bolted to a square metal frame also bolted to
each corner. Like the first one, the second tower is made up of metal rods joined together by
means of bolts, so that by unscrewing the bolts, the tower could be dismantled and
reassembled.

The third tower examined is located along Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two legs of the third tower was excavated to a
depth about two or three inches beyond the outside level of the steel bar foundation. It was
found that there was no concrete foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be resting on soft adobe, which, probably due
to high humidity, looks like mud or clay. It was also found that the square metal frame
supporting the legs were not attached to any material or foundation.

On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel towers
for real property tax under Tax declaration Nos. 31992 and 15549. After denying respondent's
petition to cancel these declarations, an appeal was taken by respondent to the Board of
Assessment Appeals of Quezon City, which required respondent to pay the amount of P11,651.86
as real property tax on the said steel towers for the years 1952 to 1956. Respondent paid the
amount under protest, and filed a petition for review in the Court of Tax Appeals (CTA for short)
which rendered a decision on December 29, 1958, ordering the cancellation of the said tax
declarations and the petitioner City Treasurer of Quezon City to refund to the respondent the sum of
P11,651.86. The motion for reconsideration having been denied, on April 22, 1959, the instant
petition for review was filed.

In upholding the cause of respondents, the CTA held that: (1) the steel towers come within the term
"poles" which are declared exempt from taxes under part II paragraph 9 of respondent's franchise;
(2) the steel towers are personal properties and are not subject to real property tax; and (3) the City
Treasurer of Quezon City is held responsible for the refund of the amount paid. These are assigned
as errors by the petitioner in the brief.

The tax exemption privilege of the petitioner is quoted hereunder:

PAR 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings,
plant (not including poles, wires, transformers, and insulators), machinery and personal
property as other persons are or may be hereafter required by law to pay ... Said percentage
shall be due and payable at the time stated in paragraph nineteen of Part One hereof, ... and
shall be in lieu of all taxes and assessments of whatsoever nature and by whatsoever
authority upon the privileges, earnings, income, franchise, and poles, wires, transformers,
and insulators of the grantee from which taxes and assessments the grantee is hereby
expressly exempted. (Par. 9, Part Two, Act No. 484 Respondent's Franchise; emphasis
supplied.)

The word "pole" means "a long, comparatively slender usually cylindrical piece of wood or timber, as
typically the stem of a small tree stripped of its branches; also by extension, a similar typically
cylindrical piece or object of metal or the like". The term also refers to "an upright standard to the top
of which something is affixed or by which something is supported; as a dovecote set on a pole;
telegraph poles; a tent pole; sometimes, specifically a vessel's master (Webster's New International
Dictionary 2nd Ed., p. 1907.) Along the streets, in the City of Manila, may be seen cylindrical metal
poles, cubical concrete poles, and poles of the PLDT Co. which are made of two steel bars joined
together by an interlacing metal rod. They are called "poles" notwithstanding the fact that they are no
made of wood. It must be noted from paragraph 9, above quoted, that the concept of the "poles" for

22
which exemption is granted, is not determined by their place or location, nor by the character of the
electric current it carries, nor the material or form of which it is made, but the use to which they are
dedicated. In accordance with the definitions, pole is not restricted to a long cylindrical piece of wood
or metal, but includes "upright standards to the top of which something is affixed or by which
something is supported. As heretofore described, respondent's steel supports consists of a
framework of four steel bars or strips which are bound by steel cross-arms atop of which are cross-
arms supporting five high voltage transmission wires (See Annex A) and their sole function is to
support or carry such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not
a novelty. Several courts of last resort in the United States have called these steel supports "steel
towers", and they denominated these supports or towers, as electric poles. In their decisions the
words "towers" and "poles" were used interchangeably, and it is well understood in that jurisdiction
that a transmission tower or pole means the same thing.

In a proceeding to condemn land for the use of electric power wires, in which the law provided that
wires shall be constructed upon suitable poles, this term was construed to mean either wood or
metal poles and in view of the land being subject to overflow, and the necessary carrying of
numerous wires and the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words and
Phrases, p. 365.)

The term "poles" was also used to denominate the steel supports or towers used by an association
used to convey its electric power furnished to subscribers and members, constructed for the purpose
of fastening high voltage and dangerous electric wires alongside public highways. The steel supports
or towers were made of iron or other metals consisting of two pieces running from the ground up
some thirty feet high, being wider at the bottom than at the top, the said two metal pieces being
connected with criss-cross iron running from the bottom to the top, constructed like ladders and
loaded with high voltage electricity. In form and structure, they are like the steel towers in question.
(Salt River Valley Users' Ass'n v. Compton, 8 P. 2nd, 249-250.)

The term "poles" was used to denote the steel towers of an electric company engaged in the
generation of hydro-electric power generated from its plant to the Tower of Oxford and City of
Waterbury. These steel towers are about 15 feet square at the base and extended to a height of
about 35 feet to a point, and are embedded in the cement foundations sunk in the earth, the top of
which extends above the surface of the soil in the tower of Oxford, and to the towers are attached
insulators, arms, and other equipment capable of carrying wires for the transmission of electric
power (Connecticut Light and Power Co. v. Oxford, 101 Conn. 383, 126 Atl. p. 1).

In a case, the defendant admitted that the structure on which a certain person met his death was
built for the purpose of supporting a transmission wire used for carrying high-tension electric power,
but claimed that the steel towers on which it is carried were so large that their wire took their
structure out of the definition of a pole line. It was held that in defining the word pole, one should not
be governed by the wire or material of the support used, but was considering the danger from any
elevated wire carrying electric current, and that regardless of the size or material wire of its individual
members, any continuous series of structures intended and used solely or primarily for the purpose
of supporting wires carrying electric currents is a pole line (Inspiration Consolidation Cooper Co. v.
Bryan 252 P. 1016).

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to defeat the
very object for which the franchise was granted. The poles as contemplated thereon, should be

23
understood and taken as a part of the electric power system of the respondent Meralco, for the
conveyance of electric current from the source thereof to its consumers. If the respondent would be
required to employ "wooden poles", or "rounded poles" as it used to do fifty years back, then one
should admit that the Philippines is one century behind the age of space. It should also be conceded
by now that steel towers, like the ones in question, for obvious reasons, can better effectuate the
purpose for which the respondent's franchise was granted.

Granting for the purpose of argument that the steel supports or towers in question are not embraced
within the term poles, the logical question posited is whether they constitute real properties, so that
they can be subject to a real property tax. The tax law does not provide for a definition of real
property; but Article 415 of the Civil Code does, by stating the following are immovable property:

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;

xxx xxx xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;

xxx xxx xxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the

tenement for an industry or works which may be carried in a building or on a piece of land,
and which tends directly to meet the needs of the said industry or works;

xxx xxx xxx

The steel towers or supports in question, do not come within the objects mentioned in paragraph 1,
because they do not constitute buildings or constructions adhered to the soil. They are not
construction analogous to buildings nor adhering to the soil. As per description, given by the lower
court, they are removable and merely attached to a square metal frame by means of bolts, which
when unscrewed could easily be dismantled and moved from place to place. They can not be
included under paragraph 3, as they are not attached to an immovable in a fixed manner, and they
can be separated without breaking the material or causing deterioration upon the object to which
they are attached. Each of these steel towers or supports consists of steel bars or metal strips,
joined together by means of bolts, which can be disassembled by unscrewing the bolts and
reassembled by screwing the same. These steel towers or supports do not also fall under paragraph
5, for they are not machineries, receptacles, instruments or implements, and even if they were, they
are not intended for industry or works on the land. Petitioner is not engaged in an industry or works
in the land in which the steel supports or towers are constructed.

It is finally contended that the CTA erred in ordering the City Treasurer of Quezon City to refund the
sum of P11,651.86, despite the fact that Quezon City is not a party to the case. It is argued that as
the City Treasurer is not the real party in interest, but Quezon City, which was not a party to the suit,
notwithstanding its capacity to sue and be sued, he should not be ordered to effect the refund. This
question has not been raised in the court below, and, therefore, it cannot be properly raised for the
first time on appeal. The herein petitioner is indulging in legal technicalities and niceties which do not
help him any; for factually, it was he (City Treasurer) whom had insisted that respondent herein pay
the real estate taxes, which respondent paid under protest. Having acted in his official capacity as
City Treasurer of Quezon City, he would surely know what to do, under the circumstances.

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the petitioners.

24
 MACHINERY & ENGINEERING SUPPLIES, INC. VS. CA, NO. L-7057

G.R. No. L-7057 October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE OF THE
COURT OF FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC., and ANTONIO
VILLARAMA, respondents.

Vicente J. Francisco for petitioner.

Capistrano and Capistrano for respondents.

CONCEPCION, J.:

This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc., from a
decision of the Court of Appeals denying an original petition for certiorari filed by said petitioner
against Hon. Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the respondents
herein.

The pertinent facts are set forth in the decision of the Court of Appeals, from which we quote:

On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First
Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies,
Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the
recovery of the machinery and equipment sold and delivered to said defendants at their
factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte of the petitioner
company, and upon approval of petitioner's bond in the sum of P15,769.00, on March
13,1953, respondent judge issued an order, commanding the Provincial Sheriff of Bulacan to
seize and take immediate possession of the properties specified in the order (Appendix I,
Answer). On March 19, 1953, two deputy sheriffs of Bulacan, the said Ramon S. Roco, and a
crew of technical men and laborers proceeded to Bigti, for the purpose of carrying the court's
order into effect. Leonardo Contreras, Manager of the respondent Company, and Pedro
Torres, in charge thereof, met the deputy sheriffs, and Contreras handed to them a letter
addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan, signed by Atty.
Adolfo Garcia of the defendants therein, protesting against the seizure of the properties in
question, on the ground that they are not personal properties. Contending that the Sheriff's
duty is merely ministerial, the deputy sheriffs, Roco, the latter's crew of technicians and
laborers, Contreras and Torres, went to the factory. Roco's attention was called to the fact
that the equipment could not possibly be dismantled without causing damages or injuries to
the wooden frames attached to them. As Roco insisted in dismantling the equipment on his
own responsibility, alleging that the bond was posted for such eventuality, the deputy sheriffs
directed that some of the supports thereof be cut (Appendix 2). On March 20, 1953, the
defendant Company filed an urgent motion, with a counter-bond in the amount of P15,769,
for the return of the properties seized by the deputy sheriffs. On the same day, the trial court
issued an order, directing the Provincial Sheriff of Bulacan to return the machinery and
equipment to the place where they were installed at the time of the seizure (Appendix 3). On
March 21, 1953, the deputy sheriffs returned the properties seized, by depositing them along
the road, near the quarry, of the defendant Company, at Bigti, without the benefit of inventory

25
 and without re-installing hem in their former position and replacing the destroyed posts,
which rendered their use impracticable. On March 23, 1953, the defendants' counsel asked
the provincial Sheriff if the machinery and equipment, dumped on the road would be re-
installed tom their former position and condition (letter, Appendix 4). On March 24, 1953, the
Provincial Sheriff filed an urgent motion in court, manifesting that Roco had been asked to
furnish the Sheriff's office with the expenses, laborers, technical men and equipment, to
carry into effect the court's order, to return the seized properties in the same way said Roco
found them on the day of seizure, but said Roco absolutely refused to do so, and asking the
court that the Plaintiff therein be ordered to provide the required aid or relieve the said Sheriff
of the duty of complying with the said order dated March 20, 1953 (Appendix 5). On March
30, 1953, the trial court ordered the Provincial Sheriff and the Plaintiff to reinstate the
machinery and equipment removed by them in their original condition in which they were
found before their removal at the expense of the Plaintiff (Appendix 7). An urgent motion of
the Provincial Sheriff dated April 15, 1953, praying for an extension of 20 days within which
to comply with the order of the Court (appendix 10) was denied; and on May 4, 1953, the trial
court ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with the
necessary funds, technical men, laborers, equipment and materials to effect the repeatedly
mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix A, pp. I-IV.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled
"Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial Sheriff of
Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the petition therein filed, it was alleged
that, in ordering the petitioner to furnish the provincial sheriff of Bulacan "with necessary funds,
technical men, laborers, equipment and materials, to effect the installation of the machinery and
equipment" in question, the Court of Firs Instance of Bulacan had committed a grave abuse if
discretion and acted in excess of its jurisdiction, for which reason it was prayed that its order to this
effect be nullified, and that, meanwhile, a writ of preliminary injunction be issued to restrain the
enforcement o said order of may 4, 1953. Although the aforementioned writ was issued by the Court
of Appeals, the same subsequently dismissed by the case for lack of merit, with costs against the
petitioner, upon the following grounds:

While the seizure of the equipment and personal properties was ordered by the respondent
Court, it is, however, logical to presume that said court did not authorize the petitioner or its
agents to destroy, as they did, said machinery and equipment, by dismantling and unbolting
the same from their concrete basements, and cutting and sawing their wooden supports,
thereby rendering them unserviceable and beyond repair, unless those parts removed, cut
and sawed be replaced, which the petitioner, not withstanding the respondent Court's order,
adamantly refused to do. The Provincial Sheriff' s tortious act, in obedience to the insistent
proddings of the president of the Petitioner, Ramon S. Roco, had no justification in law,
notwithstanding the Sheriffs' claim that his duty was ministerial. It was the bounden duty of
the respondent Judge to give redress to the respondent Company, for the unlawful and
wrongful acts committed by the petitioner and its agents. And as this was the true object of
the order of March 30, 1953, we cannot hold that same was within its jurisdiction to issue.
The ministerial duty of the Sheriff should have its limitations. The Sheriff knew or must have
known what is inherently right and inherently wrong, more so when, as in this particular case,
the deputy sheriffs were shown a letter of respondent Company's attorney, that the
machinery were not personal properties and, therefore, not subject to seizure by the terms of
the order. While it may be conceded that this was a question of law too technical to decide
on the spot, it would not have costs the Sheriff much time and difficulty to bring the letter to
the court's attention and have the equipment and machinery guarded, so as not to frustrate
the order of seizure issued by the trial court. But acting upon the directives of the president of
the Petitioner, to seize the properties at any costs, in issuing the order sought to be annulled,
had not committed abuse of discretion at all or acted in an arbitrary or despotic manner, by

26
 reason of passion or personal hostility; on the contrary, it issued said order, guided by the
well known principle that of the property has to be returned, it should be returned in as good
a condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one had
gone beyond the scope of his authority, it is the respondent Provincial Sheriff. But
considering that fact that he acted under the pressure of Ramon S. Roco, and that the order
impugned was issued not by him, but by the respondent Judge, We simply declare that said
Sheriff' act was most unusual and the result of a poor judgment. Moreover, the Sheriff not
being an officer exercising judicial functions, the writ may not reach him, for certiorari lies
only to review judicial actions.

The Petitioner complains that the respondent Judge had completely disregarded his
manifestation that the machinery and equipment seized were and still are the Petitioner's
property until fully paid for and such never became immovable. The question of ownership
and the applicability of Art. 415 of the new Civil Code are immaterial in the determination of
the only issue involved in this case. It is a matter of evidence which should be decided in the
hearing of the case on the merits. The question as to whether the machinery or equipment in
litigation are immovable or not is likewise immaterial, because the only issue raised before
the trial court was whether the Provincial Sheriff of Bulacan, at the Petitioner's instance, was
justified in destroying the machinery and in refusing to restore them to their original form , at
the expense of the Petitioner. Whatever might be the legal character of the machinery and
equipment, would not be in any way justify their justify their destruction by the Sheriff's and
the said Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having been denied , petitioner
has brought the case to Us for review by writ of certiorari. Upon examination of the record, We are
satisfied, however that the Court of Appeals was justified in dismissing the case.

The special civil action known as replevin, governed by Rule 62 of Court, is applicable only to
"personal property".

Ordinarily replevin may be brought to recover any specific personal property unlawfully taken
or detained from the owner thereof, provided such property is capable of identification and
delivery; but replevin will not lie for the recovery of real property or incorporeal personal
property. (77 C. J. S. 17) (Emphasis supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc., machinery and
equipment in question appeared to be attached to the land, particularly to the concrete foundation of
said premises, in a fixed manner, in such a way that the former could not be separated from the
latter "without breaking the material or deterioration of the object." Hence, in order to remove said
outfit, it became necessary, not only to unbolt the same, but , also, to cut some of its wooden
supports. Moreover, said machinery and equipment were "intended by the owner of the tenement for
an industry" carried on said immovable and tended." For these reasons, they were already
immovable property pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the Philippines,
which are substantially identical to paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As
such immovable property, they were not subject to replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded as part of the

realty, it is not the subject for personality; . . . .

. . . the action of replevin does not lie for articles so annexed to the realty as to be part as to
be part thereof, as, for example, a house or a turbine pump constituting part of a building's
cooling system; . . . (36 C. J. S. 1000 & 1001)

27
Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's agent
and president, Mr. Ramon Roco, insisted "on the dismantling at his own responsibility," stating that.,
precisely, "that is the reason why plaintiff posted a bond ." In this manner, petitioner clearly assumed
the corresponding risks.

Such assumption of risk becomes more apparent when we consider that, pursuant to Section 5 of
Rule 62 of the Rules of Court, the defendant in an action for replevin is entitled to the return of the
property in dispute upon the filing of a counterbond, as provided therein. In other words, petitioner
knew that the restitution of said property to respondent company might be ordered under said
provision of the Rules of Court, and that, consequently, it may become necessary for petitioner to
meet the liabilities incident to such return.

Lastly, although the parties have not cited, and We have not found, any authority squarely in point —
obviously real property are not subject to replevin — it is well settled that, when the restitution of
what has been ordered, the goods in question shall be returned in substantially the same condition
as when taken (54 C.J., 590-600, 640-641). Inasmuch as the machinery and equipment involved in
this case were duly installed and affixed in the premises of respondent company when petitioner's
representative caused said property to be dismantled and then removed, it follows that petitioner
must also do everything necessary to the reinstallation of said property in conformity with its original
condition.

Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the petitioner.
So ordered.

28
 PUNSALAN, JR. VS. VDA. DE LACSAMANA, 121 SCRA 331

G.R. No. L-55729 March 28, 1983

ANTONIO PUNSALAN, JR., petitioner,

vs.
REMEDIOS VDA. DE LACSAMANA and THE HONORABLE JUDGE RODOLFO A.
ORTIZ, respondents.

Benjamin S. Benito & Associates for petitioner.

Expedito Yummul for private respondent.

MELENCIO-HERRERA, J.:

The sole issue presented by petitioner for resolution is whether or not respondent Court erred in
denying the Motion to Set Case for Pre-trial with respect to respondent Remedios Vda. de
Lacsamana as the case had been dismissed on the ground of improper venue upon motion of co-
respondent Philippine National Bank (PNB).

It appears that petitioner, Antonio Punsalan, Jr., was the former registered owner of a parcel of land
consisting of 340 square meters situated in Bamban, Tarlac. In 1963, petitioner mortgaged said land
to respondent PNB (Tarlac Branch) in the amount of P10,000.00, but for failure to pay said amount,
the property was foreclosed on December 16, 1970. Respondent PNB (Tarlac Branch) was the
highest bidder in said foreclosure proceedings. However, the bank secured title thereto only on
December 14, 1977.

In the meantime, in 1974, while the properly was still in the alleged possession of petitioner and with
the alleged acquiescence of respondent PNB (Tarlac Branch), and upon securing a permit from the
Municipal Mayor, petitioner constructed a warehouse on said property. Petitioner declared said
warehouse for tax purposes for which he was issued Tax Declaration No. 5619. Petitioner then
leased the warehouse to one Hermogenes Sibal for a period of 10 years starting January 1975.

On July 26, 1978, a Deed of Sale was executed between respondent PNB (Tarlac Branch) and
respondent Lacsamana over the property. This contract was amended on July 31, 1978, particularly
to include in the sale, the building and improvement thereon. By virtue of said instruments,
respondent - Lacsamana secured title over the property in her name (TCT No. 173744) as well as
separate tax declarations for the land and building. 1

On November 22, 1979, petitioner commenced suit for "Annulment of Deed of Sale with Damages"
against herein respondents PNB and Lacsamana before respondent Court of First Instance of Rizal,
Branch XXXI, Quezon City, essentially impugning the validity of the sale of the building as embodied
in the Amended Deed of Sale. In this connection, petitioner alleged:

xxx xxx xxx

29
 22. That defendant, Philippine National Bank, through its Branch Manager ... by
virtue of the request of defendant ... executed a document dated July 31, 1978,
entitled Amendment to Deed of Absolute Sale ... wherein said defendant bank as
Vendor sold to defendant Lacsamana the building owned by the plaintiff under Tax
Declaration No. 5619, notwithstanding the fact that said building is not owned by the
bank either by virtue of the public auction sale conducted by the Sheriff and sold to
the Philippine National Bank or by virtue of the Deed of Sale executed by the bank
itself in its favor on September 21, 1977 ...;

23. That said defendant bank fraudulently mentioned ... that the sale in its favor
should likewise have included the building, notwithstanding no legal basis for the
same and despite full knowledge that the Certificate of Sale executed by the sheriff in
its favor ... only limited the sale to the land, hence, by selling the building which never
became the property of defendant, they have violated the principle against 'pactum
commisorium'.

Petitioner prayed that the Deed of Sale of the building in favor of respondent Lacsamana be
declared null and void and that damages in the total sum of P230,000.00, more or less, be awarded
to him.2

In her Answer filed on March 4, 1980,-respondent Lacsamana averred the affirmative defense of
lack of cause of action in that she was a purchaser for value and invoked the principle in Civil Law
that the "accessory follows the principal".3

On March 14, 1980, respondent PNB filed a Motion to Dismiss on the ground that venue was
improperly laid considering that the building was real property under article 415 (1) of the New Civil
Code and therefore section 2(a) of Rule 4 should apply. 4

Opposing said Motion to Dismiss, petitioner contended that the action for annulment of deed of sale
with damages is in the nature of a personal action, which seeks to recover not the title nor
possession of the property but to compel payment of damages, which is not an action affecting title
to real property.

On April 25, 1980, respondent Court granted respondent PNB's Motion to Dismiss as follows:

Acting upon the 'Motion to Dismiss' of the defendant Philippine National Bank dated
March 13, 1980, considered against the plaintiff's opposition thereto dated April 1,
1980, including the reply therewith of said defendant, this Court resolves to DISMISS
the plaintiff's complaint for improper venue considering that the plaintiff's complaint
which seeks for the declaration as null and void, the amendment to Deed of Absolute
Sale executed by the defendant Philippine National Bank in favor of the defendant
Remedios T. Vda. de Lacsamana, on July 31, 1978, involves a warehouse allegedly
owned and constructed by the plaintiff on the land of the defendant Philippine
National Bank situated in the Municipality of Bamban, Province of Tarlac, which
warehouse is an immovable property pursuant to Article 415, No. 1 of the New Civil
Code; and, as such the action of the plaintiff is a real action affecting title to real
property which, under Section 2, Rule 4 of the New Rules of Court, must be tried in
the province where the property or any part thereof lies.5

In his Motion for Reconsideration of the aforestated Order, petitioner reiterated the argument that the
action to annul does not involve ownership or title to property but is limited to the validity of the deed
of sale and emphasized that the case should proceed with or without respondent PNB as

30
respondent Lacsamana had already filed her Answer to the Complaint and no issue on venue had
been raised by the latter.

On September 1, 1980,.respondent Court denied reconsideration for lack of merit.

Petitioner then filed a Motion to Set Case for Pre-trial, in so far as respondent Lacsamana was
concerned, as the issues had already been joined with the filing of respondent Lacsamana's Answer.

In the Order of November 10, 1980 respondent Court denied said Motion to Set Case for Pre-trial as
the case was already dismissed in the previous Orders of April 25, 1980 and September 1, 1980.

Hence, this Petition for Certiorari, to which we gave due course.

We affirm respondent Court's Order denying the setting for pre-trial.

The warehouse claimed to be owned by petitioner is an immovable or real property as provided in

article 415(l) of the Civil Code. 6 Buildings are always immovable under the Code. 7 A building treated
separately from the land on which it stood is immovable property and the mere fact that the parties
to a contract seem to have dealt with it separate and apart from the land on which it stood in no wise
changed its character as immovable property. 8

While it is true that petitioner does not directly seek the recovery of title or possession of the property
in question, his action for annulment of sale and his claim for damages are closely intertwined with
the issue of ownership of the building which, under the law, is considered immovable property, the
recovery of which is petitioner's primary objective. The prevalent doctrine is that an action for the
annulment or rescission of a sale of real property does not operate to efface the fundamental and
prime objective and nature of the case, which is to recover said real property. It is a real action. 9

Respondent Court, therefore, did not err in dismissing the case on the ground of improper venue
(Section 2, Rule 4) 10, which was timely raised (Section 1, Rule 16) 11.

Petitioner's other contention that the case should proceed in so far as respondent Lacsamana is
concerned as she had already filed an Answer, which did not allege improper venue and, therefore,
issues had already been joined, is likewise untenable. Respondent PNB is an indispensable party as
the validity of the Amended Contract of Sale between the former and respondent Lacsamana is in
issue. It would, indeed, be futile to proceed with the case against respondent Lacsamana alone.

WHEREFORE, the petition is hereby denied without prejudice to the refiling of the case by petitioner
Antonio Punsalan, Jr. in the proper forum.

Costs against petitioner.

SO ORDERED.

31
 PRUDENTIAL BANK VS. PANIS, 153 SCRA 390

G.R. No. L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner,

vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of
Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-
MAGCALE, respondents.

PARAS, J.:

This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court of First
Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs.
Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of real estate mortgage executed by respondent spouses in favor of
petitioner bank are null and void.

The undisputed facts of this case by stipulation of the parties are as follows:

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula

Baluyut Magcale secured a loan in the sum of P70,000.00 from the defendant
Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate Mortgage over the following
described properties:

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces

containing a total floor area of 263 sq. meters, more or less, generally constructed of
mixed hard wood and concrete materials, under a roofing of cor. g. i. sheets;
declared and assessed in the name of FERNANDO MAGCALE under Tax
Declaration No. 21109, issued by the Assessor of Olongapo City with an assessed
value of P35,290.00. This building is the only improvement of the lot.

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of

occupancy on the lot where the above property is erected, and more particularly
described and bounded, as follows:

A first class residential land Identffied as Lot No. 720, (Ts-308,

Olongapo Townsite Subdivision) Ardoin Street, East Bajac-Bajac,
Olongapo City, containing an area of 465 sq. m. more or less,
declared and assessed in the name of FERNANDO MAGCALE under
Tax Duration No. 19595 issued by the Assessor of Olongapo City
with an assessed value of P1,860.00; bounded on the

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

32
 EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

All corners of the lot marked by conc. cylindrical

monuments of the Bureau of Lands as visible limits. (
Exhibit "A, " also Exhibit "1" for defendant).

Apart from the stipulations in the printed portion of the aforestated

deed of mortgage, there appears a rider typed at the bottom of the
reverse side of the document under the lists of the properties
mortgaged which reads, as follows:

AND IT IS FURTHER AGREED that in the event the

Sales Patent on the lot applied for by the Mortgagors
as herein stated is released or issued by the Bureau
of Lands, the Mortgagors hereby authorize the
Register of Deeds to hold the Registration of same
until this Mortgage is cancelled, or to annotate this
encumbrance on the Title upon authority from the
Secretary of Agriculture and Natural Resources,
which title with annotation, shall be released in favor
of the herein Mortgage.

From the aforequoted stipulation, it is obvious that the mortgagee

(defendant Prudential Bank) was at the outset aware of the fact that
the mortgagors (plaintiffs) have already filed a Miscellaneous Sales
Application over the lot, possessory rights over which, were
mortgaged to it.

Exhibit "A" (Real Estate Mortgage) was registered under the

Provisions of Act 3344 with the Registry of Deeds of Zambales on
November 23, 1971.

On May 2, 1973, plaintiffs secured an additional loan from defendant

Prudential Bank in the sum of P20,000.00. To secure payment of this
additional loan, plaintiffs executed in favor of the said defendant
another deed of Real Estate Mortgage over the same properties
previously mortgaged in Exhibit "A." (Exhibit "B;" also Exhibit "2" for
defendant). This second deed of Real Estate Mortgage was likewise
registered with the Registry of Deeds, this time in Olongapo City, on
May 2,1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent
No. 4776 over the parcel of land, possessory rights over which were mortgaged to
defendant Prudential Bank, in favor of plaintiffs. On the basis of the aforesaid Patent,
and upon its transcription in the Registration Book of the Province of Zambales,
Original Certificate of Title No. P-2554 was issued in the name of Plaintiff Fernando
Magcale, by the Ex-Oficio Register of Deeds of Zambales, on May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became due,
and upon application of said defendant, the deeds of Real Estate Mortgage (Exhibits

33
 "A" and "B") were extrajudicially foreclosed. Consequent to the foreclosure was the
sale of the properties therein mortgaged to defendant as the highest bidder in a
public auction sale conducted by the defendant City Sheriff on April 12, 1978 (Exhibit
"E"). The auction sale aforesaid was held despite written request from plaintiffs
through counsel dated March 29, 1978, for the defendant City Sheriff to desist from
going with the scheduled public auction sale (Exhibit "D")." (Decision, Civil Case No.
2443-0, Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate
Mortgage as null and void (Ibid., p. 35).

On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed by
private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10, 1979
(Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the instant petition
(Ibid., pp. 5-28).

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the
respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated May
18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the parties
were required to submit simultaneously their respective memoranda. (Ibid., p. 114).

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private respondents
filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P.
158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE

RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER
ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY
15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE.
(Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on the
building erected on the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court
ruled that, "it is obvious that the inclusion of "building" separate and distinct from the land, in said
provision of law can only mean that a building is by itself an immovable property." (Lopez vs. Orosa,
Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38,
May 30,1958).

34
Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the
improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on
which it has been built. Such a mortgage would be still a real estate mortgage for the building would
still be considered immovable property even if dealt with separately and apart from the land (Leung
Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this Court has also established
that possessory rights over said properties before title is vested on the grantee, may be validly
transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438
[1961]).

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed on
the 2-storey semi-concrete residential building with warehouse and on the right of occupancy on the
lot where the building was erected, was executed on November 19, 1971 and registered under the
provisions of Act 3344 with the Register of Deeds of Zambales on November 23, 1971.
Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the basis of
which OCT No. 2554 was issued in the name of private respondent Fernando Magcale on May 15,
1972. It is therefore without question that the original mortgage was executed before the issuance of
the final patent and before the government was divested of its title to the land, an event which takes
effect only on the issuance of the sales patent and its subsequent registration in the Office of the
Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110
Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources", p.
49). Under the foregoing considerations, it is evident that the mortgage executed by private
respondent on his own building which was erected on the land belonging to the government is to all
intents and purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be noted
that Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under the
Public Land Act, or any improvement thereon and therefore have no application to the assailed
mortgage in the case at bar which was executed before such eventuality. Likewise, Section 2 of
Republic Act No. 730, also a restriction appearing on the face of private respondent's title has
likewise no application in the instant case, despite its reference to encumbrance or alienation before
the patent is issued because it refers specifically to encumbrance or alienation on the land itself and
does not mention anything regarding the improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same properties on
May 2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of Deeds of
Olongapo City on the same date. Relative thereto, it is evident that such mortgage executed after
the issuance of the sales patent and of the Original Certificate of Title, falls squarely under the
prohibitions stated in Sections 121, 122 and 124 of the Public Land Act and Section 2 of Republic
Act 730, and is therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for five years,
voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be annotated,
without requiring the bank to get the prior approval of the Ministry of Natural Resources beforehand,
thereby implicitly authorizing Prudential Bank to cause the annotation of said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118, 120,
122 and 123 of Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in pari
delicto may not be invoked to defeat the policy of the State neither may the doctrine
of estoppel give a validating effect to a void contract. Indeed, it is generally
considered that as between parties to a contract, validity cannot be given to it by

35
 estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not
within the competence of any citizen to barter away what public policy by law was to
preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino supra). ... (Arsenal
vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass upon
any new contract between the parties (Ibid), as in the case at bar. It should not preclude new
contracts that may be entered into between petitioner bank and private respondents that are in
accordance with the requirements of the law. After all, private respondents themselves declare that
they are not denying the legitimacy of their debts and appear to be open to new negotiations under
the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to whatever
steps the Government may take for the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo City
is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but
ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and void,
without prejudice to any appropriate action the Government may take against private respondents.

SO ORDERED.

36
 TUMALAD VS. VICENCIO, 41 SCRA 143

G.R. No. L-30173 September 30, 1971

GAVINO A. TUMALAD and GENEROSA R. TUMALAD, plaintiffs-appellees,

vs.
ALBERTA VICENCIO and EMILIANO SIMEON, defendants-appellants.

Castillo & Suck for plaintiffs-appellees.

Jose Q. Calingo for defendants-appellants.

REYES, J.B.L., J.:

Case certified to this Court by the Court of Appeals (CA-G.R. No. 27824-R) for the reason that only
questions of law are involved.

This case was originally commenced by defendants-appellants in the municipal court of Manila in
Civil Case No. 43073, for ejectment. Having lost therein, defendants-appellants appealed to the
court a quo (Civil Case No. 30993) which also rendered a decision against them, the dispositive
portion of which follows:

WHEREFORE, the court hereby renders judgment in favor of the plaintiffs and
against the defendants, ordering the latter to pay jointly and severally the former a
monthly rent of P200.00 on the house, subject-matter of this action, from March 27,
1956, to January 14, 1967, with interest at the legal rate from April 18, 1956, the filing
of the complaint, until fully paid, plus attorney's fees in the sum of P300.00 and to
pay the costs.

It appears on the records that on 1 September 1955 defendants-appellants executed a chattel

mortgage in favor of plaintiffs-appellees over their house of strong materials located at No. 550 Int.
3, Quezon Boulevard, Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block No. 2554, which were being
rented from Madrigal & Company, Inc. The mortgage was registered in the Registry of Deeds of
Manila on 2 September 1955. The herein mortgage was executed to guarantee a loan of P4,800.00
received from plaintiffs-appellees, payable within one year at 12% per annum. The mode of payment
was P150.00 monthly, starting September, 1955, up to July 1956, and the lump sum of P3,150 was
payable on or before August, 1956. It was also agreed that default in the payment of any of the
amortizations, would cause the remaining unpaid balance to becomeimmediately due and Payable
and —

the Chattel Mortgage will be enforceable in accordance with the provisions of Special
Act No. 3135, and for this purpose, the Sheriff of the City of Manila or any of his
deputies is hereby empowered and authorized to sell all the Mortgagor's property
after the necessary publication in order to settle the financial debts of P4,800.00, plus
12% yearly interest, and attorney's fees... 2

37
When defendants-appellants defaulted in paying, the mortgage was extrajudicially foreclosed, and
on 27 March 1956, the house was sold at public auction pursuant to the said contract. As highest
bidder, plaintiffs-appellees were issued the corresponding certificate of sale.3 Thereafter, on 18 April
1956, plaintiffs-appellant commenced Civil Case No. 43073 in the municipal court of Manila, praying,
among other things, that the house be vacated and its possession surrendered to them, and for
defendants-appellants to pay rent of P200.00 monthly from 27 March 1956 up to the time the
possession is surrendered.4 On 21 September 1956, the municipal court rendered its decision —

... ordering the defendants to vacate the premises described in the complaint;
ordering further to pay monthly the amount of P200.00 from March 27, 1956, until
such (time that) the premises is (sic) completely vacated; plus attorney's fees of
P100.00 and the costs of the suit.5

Defendants-appellants, in their answers in both the municipal court and court a quo impugned the
legality of the chattel mortgage, claiming that they are still the owners of the house; but they waived
the right to introduce evidence, oral or documentary. Instead, they relied on their memoranda in
support of their motion to dismiss, predicated mainly on the grounds that: (a) the municipal court did
not have jurisdiction to try and decide the case because (1) the issue involved, is ownership, and (2)
there was no allegation of prior possession; and (b) failure to prove prior demand pursuant to
Section 2, Rule 72, of the Rules of Court.6

During the pendency of the appeal to the Court of First Instance, defendants-appellants failed to
deposit the rent for November, 1956 within the first 10 days of December, 1956 as ordered in the
decision of the municipal court. As a result, the court granted plaintiffs-appellees' motion for
execution, and it was actually issued on 24 January 1957. However, the judgment regarding the
surrender of possession to plaintiffs-appellees could not be executed because the subject house had
been already demolished on 14 January 1957 pursuant to the order of the court in a separate civil
case (No. 25816) for ejectment against the present defendants for non-payment of rentals on the
land on which the house was constructed.

The motion of plaintiffs for dismissal of the appeal, execution of the supersedeas bond and
withdrawal of deposited rentals was denied for the reason that the liability therefor was disclaimed
and was still being litigated, and under Section 8, Rule 72, rentals deposited had to be held until final
disposition of the appeal.7

On 7 October 1957, the appellate court of First Instance rendered its decision, the dispositive portion
of which is quoted earlier. The said decision was appealed by defendants to the Court of Appeals
which, in turn, certified the appeal to this Court. Plaintiffs-appellees failed to file a brief and this
appeal was submitted for decision without it.

Defendants-appellants submitted numerous assignments of error which can be condensed into two
questions, namely: .

(a) Whether the municipal court from which the case originated had jurisdiction to
adjudicate the same;

(b) Whether the defendants are, under the law, legally bound to pay rentals to the
plaintiffs during the period of one (1) year provided by law for the redemption of the
extrajudicially foreclosed house.

We will consider these questions seriatim.

38
(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from which the
case originated, and consequently, the appellate jurisdiction of the Court of First Instance a quo, on
the theory that the chattel mortgage is void ab initio; whence it would follow that the extrajudicial
foreclosure, and necessarily the consequent auction sale, are also void. Thus, the ownership of the
house still remained with defendants-appellants who are entitled to possession and not plaintiffs-
appellees. Therefore, it is argued by defendants-appellants, the issue of ownership will have to be
adjudicated first in order to determine possession. lt is contended further that ownership being in
issue, it is the Court of First Instance which has jurisdiction and not the municipal court.

Defendants-appellants predicate their theory of nullity of the chattel mortgage on two grounds, which
are: (a) that, their signatures on the chattel mortgage were obtained through fraud, deceit, or
trickery; and (b) that the subject matter of the mortgage is a house of strong materials, and, being an
immovable, it can only be the subject of a real estate mortgage and not a chattel mortgage.

On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-appellants'
contentions as not supported by evidence and accordingly dismissed the charge,8 confirming the
earlier finding of the municipal court that "the defense of ownership as well as the allegations of
fraud and deceit ... are mere allegations."9

It has been held in Supia and Batiaco vs. Quintero and Ayala10 that "the answer is a mere statement
of the facts which the party filing it expects to prove, but it is not evidence;11 and further, that when
the question to be determined is one of title, the Court is given the authority to proceed with the
hearing of the cause until this fact is clearly established. In the case of Sy vs. Dalman,12 wherein the
defendant was also a successful bidder in an auction sale, it was likewise held by this Court that in
detainer cases the aim of ownership "is a matter of defense and raises an issue of fact which should
be determined from the evidence at the trial." What determines jurisdiction are the allegations or
averments in the complaint and the relief asked for. 13

Moreover, even granting that the charge is true, fraud or deceit does not render a contract void ab
initio, and can only be a ground for rendering the contract voidable or annullable pursuant to Article
1390 of the New Civil Code, by a proper action in court. 14 There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. Hence,
defendants-appellants' claim of ownership on the basis of a voidable contract which has not been
voided fails.

It is claimed in the alternative by defendants-appellants that even if there was no fraud, deceit or
trickery, the chattel mortgage was still null and void ab initio because only personal properties can
be subject of a chattel mortgage. The rule about the status of buildings as immovable property is
stated in Lopez vs. Orosa, Jr. and Plaza Theatre Inc.,15 cited in Associated Insurance Surety Co., Inc.
vs. Iya, et al. 16 to the effect that —

... it is obvious that the inclusion of the building, separate and distinct from the land,
in the enumeration of what may constitute real properties (art. 415, New Civil Code)
could only mean one thing — that a building is by itself an immovable
property irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner.

Certain deviations, however, have been allowed for various reasons. In the case of Manarang and
Manarang vs. Ofilada,17 this Court stated that "it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property", citing Standard
Oil Company of New York vs. Jaramillo. 18 In the latter case, the mortgagor conveyed and transferred
to the mortgagee by way of mortgage "the following described personal property." 19 The "personal

39
property" consisted of leasehold rights and a building. Again, in the case of Luna vs.
Encarnacion,20 the subject of the contract designated as Chattel Mortgage was a house of mixed
materials, and this Court hold therein that it was a valid Chattel mortgage because it was
so expressly designated and specifically that the property given as security "is a house of mixed
materials, which by its very nature is considered personal property." In the later case of Navarro vs.
Pineda,21 this Court stated that —

The view that parties to a deed of chattel mortgage may agree to consider a house
as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based, partly, upon the principle of estoppel"
(Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In a case, a mortgaged
house built on a rented land was held to be a personal property, not only because
the deed of mortgage considered it as such, but also because it did not form part of
the land (Evangelists vs. Abad, [CA]; 36 O.G. 2913), for it is now settled that an
object placed on land by one who had only a temporary right to the same, such as
the lessee or usufructuary, does not become immobilized by attachment (Valdez vs.
Central Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. vs. Castillo, et al.,
61 Phil. 709). Hence, if a house belonging to a person stands on a rented land
belonging to another person, it may be mortgaged as a personal property as so
stipulated in the document of mortgage. (Evangelista vs. Abad, Supra.) It should be
noted, however that the principle is predicated on statements by the owner declaring
his house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G. 5374): 22

In the contract now before Us, the house on rented land is not only expressly designated as Chattel
Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage23 the property together with its leasehold rights over the lot
on which it is constructed and participation ..." 24 Although there is no specific statement referring to
the subject house as personal property, yet by ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which
defendats-appellants merely had a temporary right as lessee, and although this can not in itself
alone determine the status of the property, it does so when combined with other factors to sustain
the interpretation that the parties, particularly the mortgagors, intended to treat the house as
personalty. Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung
Yee vs. F. L. Strong Machinery and Williamson, 26 wherein third persons assailed the validity of the
chattel mortgage,27 it is the defendants-appellants themselves, as debtors-mortgagors, who are
attacking the validity of the chattel mortgage in this case. The doctrine of estoppel therefore applies
to the herein defendants-appellants, having treated the subject house as personalty.

(b) Turning to the question of possession and rentals of the premises in question. The Court of First
Instance noted in its decision that nearly a year after the foreclosure sale the mortgaged house had
been demolished on 14 and 15 January 1957 by virtue of a decision obtained by the lessor of the
land on which the house stood. For this reason, the said court limited itself to sentencing the
erstwhile mortgagors to pay plaintiffs a monthly rent of P200.00 from 27 March 1956 (when the
chattel mortgage was foreclosed and the house sold) until 14 January 1957 (when it was torn down
by the Sheriff), plus P300.00 attorney's fees.

Appellants mortgagors question this award, claiming that they were entitled to remain in possession
without any obligation to pay rent during the one year redemption period after the foreclosure sale,
i.e., until 27 March 1957. On this issue, We must rule for the appellants.

40
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No. 1508.28 Section
14 of this Act allows the mortgagee to have the property mortgaged sold at public auction through a
public officer in almost the same manner as that allowed by Act No. 3135, as amended by Act No.
4118, provided that the requirements of the law relative to notice and registration are complied
with. 29 In the instant case, the parties specifically stipulated that "the chattel mortgage will
be enforceable in accordance with the provisions of Special Act No. 3135 ... ." 30 (Emphasis
supplied).

Section 6 of the Act referred to 31 provides that the debtor-mortgagor (defendants-appellants herein)
may, at any time within one year from and after the date of the auction sale, redeem the property
sold at the extra judicial foreclosure sale. Section 7 of the same Act 32 allows the purchaser of the
property to obtain from the court the possession during the period of redemption: but the same
provision expressly requires the filing of a petition with the proper Court of First Instance and the
furnishing of a bond. It is only upon filing of the proper motion and the approval of the corresponding
bond that the order for a writ of possession issues as a matter of course. No discretion is left to the
court. 33 In the absence of such a compliance, as in the instant case, the purchaser can not claim
possession during the period of redemption as a matter of right. In such a case, the governing
provision is Section 34, Rule 39, of the Revised Rules of Court 34 which also applies to properties
purchased in extrajudicial foreclosure proceedings.35 Construing the said section, this Court stated in
the aforestated case of Reyes vs. Hamada.

In other words, before the expiration of the 1-year period within which the judgment-
debtor or mortgagor may redeem the property, the purchaser thereof is not entitled,
as a matter of right, to possession of the same. Thus, while it is true that the Rules of
Court allow the purchaser to receive the rentals if the purchased property is occupied
by tenants, he is, nevertheless, accountable to the judgment-debtor or mortgagor as
the case may be, for the amount so received and the same will be duly credited
against the redemption price when the said debtor or mortgagor effects the
redemption. Differently stated, the rentals receivable from tenants, although they may
be collected by the purchaser during the redemption period, do not belong to the
latter but still pertain to the debtor of mortgagor. The rationale for the Rule, it seems,
is to secure for the benefit of the debtor or mortgagor, the payment of the redemption
amount and the consequent return to him of his properties sold at public auction.
(Emphasis supplied)

The Hamada case reiterates the previous ruling in Chan vs. Espe.36

Since the defendants-appellants were occupying the house at the time of the auction sale, they are
entitled to remain in possession during the period of redemption or within one year from and after 27
March 1956, the date of the auction sale, and to collect the rents or profits during the said period.

It will be noted further that in the case at bar the period of redemption had not yet expired when
action was instituted in the court of origin, and that plaintiffs-appellees did not choose to take
possession under Section 7, Act No. 3135, as amended, which is the law selected by the parties to
govern the extrajudicial foreclosure of the chattel mortgage. Neither was there an allegation to that
effect. Since plaintiffs-appellees' right to possess was not yet born at the filing of the complaint, there
could be no violation or breach thereof. Wherefore, the original complaint stated no cause of action
and was prematurely filed. For this reason, the same should be ordered dismissed, even if there was
no assignment of error to that effect. The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a
just decision of the cases. 37

41
It follows that the court below erred in requiring the mortgagors to pay rents for the year following the
foreclosure sale, as well as attorney's fees.

FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one
entered, dismissing the complaint. With costs against plaintiffs-appellees.

42
 SERG’S PRODUCTS AND GOQUIOLA VS. PCI LEASING AND
FINANCE, 338 SCRA 499

[G.R. No. 137705. August 22, 2000]

SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, Petitioners, vs. PCI LEASING
AND FINANCE, INC., Respondent.

DECISION

PANGANIBAN, J.: chanrobles virtual law library

After agreeing to a contract stipulating that a real or immovable property be considered as personal
or movable, a party is estopped from subsequently claiming otherwise. Hence, such property is a
proper subject of a writ of replevin obtained by the other contracting party.

The Case chanrobles virtual law library

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision 1 of the Court
of Appeals (CA)[2 in CA-GR SP No. 47332 and its February 26, 1999 Resolution[3 denying
reconsideration. The decretal portion of the CA Decision reads as follows: chanrobles virtual law
library

WHEREFORE, premises considered, the assailed Order dated February 18, 1998 and Resolution
dated March 31, 1998 in Civil Case No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary
injunction issued on June 15, 1998 is hereby LIFTED.4 chanrobles virtual law library

In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of Quezon City (Branch
218)[6 issued a Writ of Seizure.[7 The March 18, 1998 Resolution[8 denied petitioners Motion for
Special Protective Order, praying that the deputy sheriff be enjoined from seizing immobilized or
other real properties in (petitioners) factory in Cainta, Rizal and to return to their original place
whatever immobilized machineries or equipments he may have removed.[9

The Facts chanrobles virtual law library

The undisputed facts are summarized by the Court of Appeals as follows:10 chanrobles virtual law
library

On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI Leasing for short) filed with
the RTC-QC a complaint for [a] sum of money (Annex E), with an application for a writ of replevin
docketed as Civil Case No. Q-98-33500. chanrobles virtual law library

On March 6, 1998, upon an ex-parte application of PCI Leasing, respondent judge issued a writ of
replevin (Annex B) directing its sheriff to seize and deliver the machineries and equipment to PCI
Leasing after 5 days and upon the payment of the necessary expenses. chanrobles virtual law
library

43
On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners factory,
seized one machinery with [the] word that he [would] return for the other machineries. chanrobles
virtual law library

On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking the
power of the court to control the conduct of its officers and amend and control its processes, praying
for a directive for the sheriff to defer enforcement of the writ of replevin. chanrobles virtual law library

This motion was opposed by PCI Leasing (Annex F), on the ground that the properties [were] still
personal and therefore still subject to seizure and a writ of replevin. chanrobles virtual law library

In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties agreement to the contrary notwithstanding. They
argued that to give effect to the agreement would be prejudicial to innocent third parties. They further
stated that PCI Leasing [was] estopped from treating these machineries as personal because the
contracts in which the alleged agreement [were] embodied [were] totally sham and
farcical. chanrobles virtual law library

On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of the
remaining properties. He was able to take two more, but was prevented by the workers from taking
the rest. chanrobles virtual law library

On April 7, 1998, they went to [the CA] via an original action for certiorari.

Ruling of the Court of Appeals chanrobles virtual law library

Citing the Agreement of the parties, the appellate court held that the subject machines were
personal property, and that they had only been leased, not owned, by petitioners. It also ruled that
the words of the contract are clear and leave no doubt upon the true intention of the contracting
parties. Observing that Petitioner Goquiolay was an experienced businessman who was not
unfamiliar with the ways of the trade, it ruled that he should have realized the import of the document
he signed. The CA further held: chanrobles virtual law library

Furthermore, to accord merit to this petition would be to preempt the trial court in ruling upon the
case below, since the merits of the whole matter are laid down before us via a petition whose sole
purpose is to inquire upon the existence of a grave abuse of discretion on the part of the [RTC] in
issuing the assailed Order and Resolution. The issues raised herein are proper subjects of a full-
blown trial, necessitating presentation of evidence by both parties. The contract is being enforced by
one, and [its] validity is attacked by the other a matter x x x which respondent court is in the best
position to determine. chanrobles virtual law library

Hence, this Petition.11

The Issues chanrobles virtual law library

In their Memorandum, petitioners submit the following issues for our consideration: chanrobles
virtual law library

A. Whether or not the machineries purchased and imported by SERGS became real property by
virtue of immobilization. chanrobles virtual law library

44
B. Whether or not the contract between the parties is a loan or a lease.12 chanrobles virtual law
library

In the main, the Court will resolve whether the said machines are personal, not immovable, property
which may be a proper subject of a writ of replevin. As a preliminary matter, the Court will also
address briefly the procedural points raised by respondent.

The Courts Ruling chanrobles virtual law library

The Petition is not meritorious.

Preliminary Matter:Procedural Questionschanrobles virtual law library

Respondent contends that the Petition failed to indicate expressly whether it was being filed under
Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously impleaded
Judge Hilario Laqui as respondent. chanrobles virtual law library

There is no question that the present recourse is under Rule 45. This conclusion finds support in the
very title of the Petition, which is Petition for Review on Certiorari.13 chanrobles virtual law library

While Judge Laqui should not have been impleaded as a respondent,14 substantial justice requires
that such lapse by itself should not warrant the dismissal of the present Petition. In this light, the
Court deems it proper to remove, motu proprio, the name of Judge Laqui from the caption of the
present case.

Main Issue: Nature of the Subject Machinerychanrobles virtual law library

Petitioners contend that the subject machines used in their factory were not proper subjects of the
Writ issued by the RTC, because they were in fact real property. Serious policy considerations, they
argue, militate against a contrary characterization. chanrobles virtual law library

Rule 60 of the Rules of Court provides that writs of replevin are issued for the recovery of personal
property only.15 Section 3 thereof reads: chanrobles virtual law library

SEC. 3. Order. -- Upon the filing of such affidavit and approval of the bond, the court shall issue an
order and the corresponding writ of replevin describing the personal property alleged to be
wrongfully detained and requiring the sheriff forthwith to take such property into his
custody. chanrobles virtual law library

On the other hand, Article 415 of the Civil Code enumerates immovable or real property as
follows: chanrobles virtual law library

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x chanrobles virtual law library

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or works which may be carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works;

x x x....................................x x x....................................x x x chanrobles virtual law library

45
In the present case, the machines that were the subjects of the Writ of Seizure were placed by
petitioners in the factory built on their own land. Indisputably, they were essential and principal
elements of their chocolate-making industry. Hence, although each of them was movable or
personal property on its own, all of them have become immobilized by destination because they are
essential and principal elements in the industry.16 In that sense, petitioners are correct in arguing
that the said machines are real, not personal, property pursuant to Article 415 (5) of the Civil
Code.[17 chanrobles virtual law library

Be that as it may, we disagree with the submission of the petitioners that the said machines are not
proper subjects of the Writ of Seizure. chanrobles virtual law library

The Court has held that contracting parties may validly stipulate that a real property be considered
as personal.18 After agreeing to such stipulation, they are consequently estopped from claiming
otherwise. Under the principle of estoppel, a party to a contract is ordinarily precluded from denying
the truth of any material fact found therein. chanrobles virtual law library

Hence, in Tumalad v. Vicencio,19 the Court upheld the intention of the parties to treat a house as a
personal property because it had been made the subject of a chattel mortgage. The Court
ruled: chanrobles virtual law library

x x x. Although there is no specific statement referring to the subject house as personal property, yet
by ceding, selling or transferring a property by way of chattel mortgage defendants-appellants could
only have meant to convey the house as chattel, or at least, intended to treat the same as such, so
that they should not now be allowed to make an inconsistent stand by claiming
otherwise. chanrobles virtual law library

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile Mills[20] also
held that the machinery used in a factory and essential to the industry, as in the present case, was a
proper subject of a writ of replevin because it was treated as personal property in a contract.
Pertinent portions of the Courts ruling are reproduced hereunder: chanrobles virtual law library

x x x. If a house of strong materials, like what was involved in the above Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will be prejudiced thereby, there is
absolutely no reason why a machinery, which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise treated as such. This is really because one who
has so agreed is estopped from denying the existence of the chattel mortgage. chanrobles virtual
law library

In the present case, the Lease Agreement clearly provides that the machines in question are to be
considered as personal property. Specifically, Section 12.1 of the Agreement reads as
follows:21 chanrobles virtual law library

12.1 The PROPERTY is, and shall at all times be and remain, personal property notwithstanding that
the PROPERTY or any part thereof may now be, or hereafter become, in any manner affixed or
attached to or embedded in, or permanently resting upon, real property or any building thereon, or
attached in any manner to what is permanent. chanrobles virtual law library

Clearly then, petitioners are estopped from denying the characterization of the subject machines as
personal property. Under the circumstances, they are proper subjects of the Writ of
Seizure. chanrobles virtual law library

46
It should be stressed, however, that our holding -- that the machines should be deemed personal
property pursuant to the Lease Agreement is good only insofar as the contracting parties are
concerned.22 Hence, while the parties are bound by the Agreement, third persons acting in good
faith are not affected by its stipulation characterizing the subject machinery as personal.[23 In any
event, there is no showing that any specific third party would be adversely affected.

Validity of the Lease Agreement chanrobles virtual law library

In their Memorandum, petitioners contend that the Agreement is a loan and not a lease.24 Submitting
documents supposedly showing that they own the subject machines, petitioners also argue in their
Petition that the Agreement suffers from intrinsic ambiguity which places in serious doubt the
intention of the parties and the validity of the lease agreement itself.[25 In their Reply to respondents
Comment, they further allege that the Agreement is invalid.[26 chanrobles virtual law library

These arguments are unconvincing. The validity and the nature of the contract are the lis mota of the
civil action pending before the RTC. A resolution of these questions, therefore, is effectively a
resolution of the merits of the case. Hence, they should be threshed out in the trial, not in the
proceedings involving the issuance of the Writ of Seizure. chanrobles virtual law library

Indeed, in La Tondea Distillers v. CA,27 the Court explained that the policy under Rule 60 was that
questions involving title to the subject property questions which petitioners are now raising -- should
be determined in the trial. In that case, the Court noted that the remedy of defendants under Rule 60
was either to post a counter-bond or to question the sufficiency of the plaintiffs bond. They were not
allowed, however, to invoke the title to the subject property. The Court ruled: chanrobles virtual law
library

In other words, the law does not allow the defendant to file a motion to dissolve or discharge the writ
of seizure (or delivery) on ground of insufficiency of the complaint or of the grounds relied upon
therefor, as in proceedings on preliminary attachment or injunction, and thereby put at issue the
matter of the title or right of possession over the specific chattel being replevied, the policy
apparently being that said matter should be ventilated and determined only at the trial on the
merits.28 chanrobles virtual law library

Besides, these questions require a determination of facts and a presentation of evidence, both of
which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for review in
this Court under Rule 45.29

Reliance on the Lease Agreement chanrobles virtual law library

It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing on
record shows that it has been nullified or annulled. In fact, petitioners assailed it first only in the RTC
proceedings, which had ironically been instituted by respondent. Accordingly, it must be presumed
valid and binding as the law between the parties. chanrobles virtual law library

Makati Leasing and Finance Corporation30 is also instructive on this point. In that case, the Deed of
Chattel Mortgage, which characterized the subject machinery as personal property, was also
assailed because respondent had allegedly been required to sign a printed form of chattel mortgage
which was in a blank form at the time of signing. The Court rejected the argument and relied on the
Deed, ruling as follows: chanrobles virtual law library

x x x. Moreover, even granting that the charge is true, such fact alone does not render a contract
void ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant

47
to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show
that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the
same. x x x

Alleged Injustice Committed on the Part of Petitioners chanrobles virtual law library

Petitioners contend that if the Court allows these machineries to be seized, then its workers would
be out of work and thrown into the streets.31 They also allege that the seizure would nullify all efforts
to rehabilitate the corporation. chanrobles virtual law library

Petitioners arguments do not preclude the implementation of the Writ. As earlier discussed, law and
jurisprudence support its propriety. Verily, the above-mentioned consequences, if they come true,
should not be blamed on this Court, but on the petitioners for failing to avail themselves of the
remedy under Section 5 of Rule 60, which allows the filing of a counter-bond. The provision
states: chanrobles virtual law library

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants bond, or
of the surety or sureties thereon, he cannot immediately require the return of the property, but if he
does not so object, he may, at any time before the delivery of the property to the applicant, require
the return thereof, by filing with the court where the action is pending a bond executed to the
applicant, in double the value of the property as stated in the applicants affidavit for the delivery
thereof to the applicant, if such delivery be adjudged, and for the payment of such sum to him as
may be recovered against the adverse party, and by serving a copy bond on the
applicant. chanrobles virtual law library

WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioners. chanrobles virtual law library

SO ORDERED. chanrobles virtual law

48
 MANARANG AND MANARANG VS. OFILADA AND ESTEBAN,

99 SCRA 108

G.R. No. L-8133. May 18, 1956.

MANUEL C. MANARANG and LUCIA D. MANARANG, Petitioners-Appellants, vs. MACARIO M.
OFILADA, Sheriff of the City of Manila and ERNESTO ESTEBAN, Respondents-Appellees.

LABRADOR, J.:
On September 8, 1951, petitioner Lucia D. Manarang obtained a loan of P200 from Ernesto
Esteban, and to secure its payment she executed a chattel mortgage over a house of mixed
materials erected on a lot on Alvarado Street, Manila. As Manarang did not pay the loan as agreed
upon, Esteban brought an action against her in the municipal court of Manila for its recovery,
alleging that the loan was secured by a chattel mortgage on her property. Judgment haying been
entered in plaintiff's favor, execution was issued against the same property mortgaged.
Before the property could be sold Manarang offered to pay the sum of P277, which represented the
amount of the judgment of P250, the interest thereon, the costs, and the sheriff's fees, but the sheriff
refused the tender unless the additional amount of P260 representing the publication of the notice of
sale in two newspapers be paid also. So defendants therein brought this suit to compel the sheriff to
accept the amount of P277 as full payment of the judgment and to annul the published notice of
sale.
It is to be noted that in the complaint filed in the municipal court, a copy of the chattel mortgage is
attached and mention made of its registration, and in the prayer request is made that the house
mortgaged be sold at public auction to satisfy the debt. It is also important to note that the house
mortgaged was levied upon at plaintiffs request (Exhibit "E").
On the basis of the above facts counsel for Manarang contended in the court below that the house in
question should be considered as personal property and the publication of the notice of its sale at
public auction in execution considered unnecessary. The Court of First Instance held that although
real property may sometimes be considered as personal property, the sheriff was in duty bound to
cause the publication of the notice of its sale in order ip make the sale valid or to prevent its being
declared void or voidable, and he did not, therefore, err in causing such publication of the notice. So
it denied the petition.
There can not be any question that a building of mixed materials may be the subject of a chattel
mortgage, in which case it is considered as between the parties as personal property. We held so
expressly in the cases of Luna vs. Encaraacion, et al.,* 48 Off. Gaz., No. 7, p. 2664; Standard Oil
Co. of New York vs. Jaranillo, 44 Phil., 630; and De Jesus vs. Guan Dee Co., Inc., 72 Phil, 464. The
matter depends on the circumstances and the intention of the parties.
"* * * The general principle of law is that a building permanently fixed to the freehold becomes a part
of it, that prima facie a house is real estate, belonging to the owner of the land gn. which it stands,
even though it was erected against the will of the landowner, or without his consent. * * * The
general rule is otherwise, however, where the improvement is made with the' consent of the
landowner, and pursuant to an understanding either expressed or implied that it shall remain
personal property. Nor does the general rule apply to a building which is wrongfully removed from
the land and placed on the land of the person removing it." (42 Am. Jur. 199-200.)

49
"* * * Among the principal criteria for determining whether property' remains personaly or becomes
realty are annexation to the! sail, either actual or construction, and the intention of the parties. * * *
"Personal property may retain its character as such where it is so agreed by the parties interested
even though annexed to the realty, or where it is affixed in the soil to be used for' a particular
purpose for a short period and then removed as soon as it.has served its purpose. * * *." (Ibid., 209-
210.)
The question now before us, however, is Does the fact that the parties entering into a contract
regarding a house gave said property the consideration of personal property in their contract, bind
the sheriff in advertising the property's sale at public auction as personal property? It is to be
remembered that in the case at bar the action was to collect a loan secured by a chattel mortgage
on the house. It is also to be remembered that in practice it is the judgment creditor who points out to
the sheriff the properties that the sheriff is to levy upon in execution, and the judgment creditor in the
case at bar is the party in whose favor the owner of the house and conveyed it by way of chattel
mortgage and, therefore, knew its consideration as personal property.
These considerations notwithstanding, we hold that the rules on execution do not allow, and we
should not interpret them in such a way as to allow, the special consideration that parties to a
contract may have desired to impart to real estate, for example, as personal property, when they are
not ordinarily so. Sales on execution affect the public and third persons. The regulation governing
sales on execution are for public officials to follow. The form of proceedings prescribed for each kind
of property is suited to its character, not to the character which the parties have given to it or desire
to give it. When the rules speak of personal property, property which is ordinarily so considered is
meant; and when real property is spoken of, it means property which is generally known as real
property. The regulations were never intended to suit the consideration that parties, may have
privately given to the property levied upon. Enforcement of regulations would be difficult were the
convenience or agreement of private parties to determine or govern the nature of the proceedings.
We, therefore, hold that the mere fact that a house was the subject of a chattel mortgage and was
considered as personal property by the parties does not make said house personal proper for
purposes of the notice to be given for its sale at public auction. This ruling is demanded by the need
for a definite, orderly and well-defined regulation for official and public guidance and which would
prevent confusion and misunderstanding.
We, therefore, declare that the house of mixed materials levied upon on execution, although subject
of a contract of chattel mortgage between the owner and a third person, is real property within the
purview of Rule 39, section 16, of the Rules of Court as it has become a permanent fixture oh the
land, which is real property; (42 Am. Jur. 190-200; Leung Yee vs. Strong Machinery Co., 37 Phil.,
644; Republic vs. Ceniza, et alt 90 Phil., 544; Ladera, et al. vs. Hedges, et al., [C. A], 48 Off, Gaz.,
5374.)
The judgment appealed from is hereby affirmed, with
costs. So ordered.

50
 NAVARRO VS. PINEDA, 9 SCRA 631

G.R. No. L-18456 November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,

vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

Deogracias Tañedo, Jr. for plaintiff-appellee.

Renato A. Santos for defendants-appellants.

PAREDES, J.:

On December 14, 1959, defendants Rufino G. Pineda and his mother Juana Gonzales (married to
Gregorio Pineda), borrowed from plaintiff Conrado P. Navarro, the sum of P2,500.00, payable 6
months after said date or on June 14, 1959. To secure the indebtedness, Rufino executed a
document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES", whereby Juana
Gonzales, by way of Real Estate Mortgage hypothecated a parcel of land, belonging to her,
registered with the Register of Deeds of Tarlac, under Transfer Certificate of Title No. 25776, and
Rufino G. Pineda, by way of Chattel Mortgage, mortgaged his two-story residential house, having a
floor area of 912 square meters, erected on a lot belonging to Atty. Vicente Castro, located at Bo.
San Roque, Tarlac, Tarlac; and one motor truck, registered in his name, under Motor Vehicle
Registration Certificate No. A-171806. Both mortgages were contained in one instrument, which was
registered in both the Office of the Register of Deeds and the Motor Vehicles Office of Tarlac.

When the mortgage debt became due and payable, the defendants, after demands made on them,
failed to pay. They, however, asked and were granted extension up to June 30, 1960, within which to
pay. Came June 30, defendants again failed to pay and, for the second time, asked for another
extension, which was given, up to July 30, 1960. In the second extension, defendant Pineda in a
document entitled "Promise", categorically stated that in the remote event he should fail to make
good the obligation on such date (July 30, 1960), the defendant would no longer ask for further
extension and there would be no need for any formal demand, and plaintiff could proceed to take
whatever action he might desire to enforce his rights, under the said mortgage contract. In spite of
said promise, defendants, failed and refused to pay the obligation.

On August 10, 1960, plaintiff filed a complaint for foreclosure of the mortgage and for damages,
which consisted of liquidated damages in the sum of P500.00 and 12% per annum interest on the
principal, effective on the date of maturity, until fully paid.

Defendants, answering the complaint, among others, stated —

Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the First
Cause of Action which states that the defendants unreasonably failed and refuse to pay their
obligation to the plaintiff the truth being the defendants are hard up these days and pleaded
to the plaintiff to grant them more time within which to pay their obligation and the plaintiff
refused;

51
 WHEREFORE, in view of the foregoing it is most respectfully prayed that this Honorable
Court render judgment granting the defendants until January 31, 1961, within which to pay
their obligation to the plaintiff.

On September 30, 1960, plaintiff presented a Motion for summary Judgment, claiming that the
Answer failed to tender any genuine and material issue. The motion was set for hearing, but the
record is not clear what ruling the lower court made on the said motion. On November 11, 1960,
however, the parties submitted a Stipulation of Facts, wherein the defendants admitted the
indebtedness, the authenticity and due execution of the Real Estate and Chattel Mortgages; that the
indebtedness has been due and unpaid since June 14, 1960; that a liability of 12% per annum as
interest was agreed, upon failure to pay the principal when due and P500.00 as liquidated damages;
that the instrument had been registered in the Registry of Property and Motor Vehicles Office, both
of the province of Tarlac; that the only issue in the case is whether or not the residential house,
subject of the mortgage therein, can be considered a Chattel and the propriety of the attorney's fees.

On February 24, 1961, the lower court held —

... WHEREFORE, this Court renders decision in this Case:

(a) Dismissing the complaint with regard to defendant Gregorio Pineda;

(b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon Reyes,
to pay jointly and severally and within ninety (90) days from the receipt of the copy of this
decision to the plaintiff Conrado P. Navarro the principal sum of P2,550.00 with 12%
compounded interest per annum from June 14, 1960, until said principal sum and interests
are fully paid, plus P500.00 as liquidated damages and the costs of this suit, with the warning
that in default of said payment of the properties mentioned in the deed of real estate
mortgage and chattel mortgage (Annex "A" to the complaint) be sold to realize said mortgage
debt, interests, liquidated damages and costs, in accordance with the pertinent provisions of
Act 3135, as amended by Act 4118, and Art. 14 of the Chattel Mortgage Law, Act 1508; and

(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to the
Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A", immediately
after the lapse of the ninety (90) days above-mentioned, in default of such payment.

The above judgment was directly appealed to this Court, the defendants therein assigning only a
single error, allegedly committed by the lower court, to wit —

In holding that the deed of real estate and chattel mortgages appended to the complaint is
valid, notwithstanding the fact that the house of the defendant Rufino G. Pineda was made
the subject of the chattel mortgage, for the reason that it is erected on a land that belongs to
a third person.

Appellants contend that article 415 of the New Civil Code, in classifying a house as immovable
property, makes no distinction whether the owner of the land is or not the owner of the building; the
fact that the land belongs to another is immaterial, it is enough that the house adheres to the land;
that in case of immovables by incorporation, such as houses, trees, plants, etc; the Code does not
require that the attachment or incorporation be made by the owner of the land, the only criterion
being the union or incorporation with the soil. In other words, it is claimed that "a building is an
immovable property, irrespective of whether or not said structure and the land on which it is adhered
to, belong to the same owner" (Lopez v. Orosa, G.R. Nos. L-10817-8, Feb. 28, 1958). (See also the
case of Leung Yee v. Strong Machinery Co., 37 Phil. 644). Appellants argue that since only

52
movables can be the subject of a chattel mortgage (sec. 1, Act No. 3952) then the mortgage in
question which is the basis of the present action, cannot give rise to an action for foreclosure,
because it is nullity. (Citing Associated Ins. Co., et al. v. Isabel Iya v. Adriano Valino, et al., L-10838,
May 30, 1958.)

The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely on
the ground that the house mortgaged was erected on the land which belonged to a third person, but
also and principally on the doctrine of estoppel, in that "the parties have so expressly agreed" in the
mortgage to consider the house as chattel "for its smallness and mixed materials of sawali and
wood". In construing arts. 334 and 335 of the Spanish Civil Code (corresponding to arts. 415 and
416, N.C.C.), for purposes of the application of the Chattel Mortgage Law, it was held that under
certain conditions, "a property may have a character different from that imputed to it in said articles.
It is undeniable that the parties to a contract may by agreement, treat as personal property that
which by nature would be real property" (Standard Oil Co. of N.Y. v. Jaranillo, 44 Phil. 632-
633)."There can not be any question that a building of mixed materials may be the subject of a
chattel mortgage, in which case, it is considered as between the parties as personal property. ... The
matter depends on the circumstances and the intention of the parties". "Personal property may retain
its character as such where it is so agreed by the parties interested even though annexed to the
realty ...". (42 Am. Jur. 209-210, cited in Manarang, et al. v. Ofilada, et al., G.R. No. L-8133, May 18,
1956; 52 O.G. No. 8, p. 3954.) The view that parties to a deed of chattel mortgagee may agree to
consider a house as personal property for the purposes of said contract, "is good only insofar as the
contracting parties are concerned. It is based partly, upon the principles of estoppel ..." (Evangelista
v. Alto Surety, No. L-11139, Apr. 23, 1958). In a case, a mortgage house built on a rented land, was
held to be a personal property, not only because the deed of mortgage considered it as such, but
also because it did not form part of the land (Evangelista v. Abad [CA];36 O.G. 2913), for it is now
well settled that an object placed on land by one who has only a temporary right to the same, such
as a lessee or usufructuary, does not become immobilized by attachment (Valdez v. Central
Altagracia, 222 U.S. 58, cited in Davao Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to another person, it may be
mortgaged as a personal property is so stipulated in the document of mortgage. (Evangelista v.
Abad, supra.) It should be noted, however, that the principle is predicated on statements by the
owner declaring his house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise (Ladera, et al.. v. C. N. Hodges, et al., [CA]; 48 O.G. 5374). The
doctrine, therefore, gathered from these cases is that although in some instances, a house of mixed
materials has been considered as a chattel between them, has been recognized, it has been a
constant criterion nevertheless that, with respect to third persons, who are not parties to the contract,
and specially in execution proceedings, the house is considered as an immovable property (Art.
1431, New Civil Code).

In the case at bar, the house in question was treated as personal or movable property, by the parties
to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda conveyed by
way of "Chattel Mortgage" "my personal properties", a residential house and a truck. The mortgagor
himself grouped the house with the truck, which is, inherently a movable property. The house which
was not even declared for taxation purposes was small and made of light construction materials: G.I.
sheets roofing, sawali and wooden walls and wooden posts; built on land belonging to another.

The cases cited by appellants are not applicable to the present case. The Iya cases (L-10837-
38, supra), refer to a building or a house of strong materials, permanently adhered to the land,
belonging to the owner of the house himself. In the case of Lopez v. Orosa, (L-10817-18), the
subject building was a theatre, built of materials worth more than P62,000, attached permanently to
the soil. In these cases and in the Leung Yee case, supra, third persons assailed the validity of the
deed of chattel mortgages; in the present case, it was one of the parties to the contract of mortgages
who assailed its validity.

53
CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.

54